Economist Paul Krugman Compares Cryptocurrency Mania to 2000s Crisis

The Nobel laureate Paul Krugman compares the crypto craze to the housing bubble and warns crypto users that digital tokens might become worthless.

In a recent New York Times column, Paul Krugman compared the cryptocurrency craze to the mid-2000s housing bubble. He warned that digital coins’ hype was similar to people’s unwavering faith in the US housing market before it crashed, resulting in a global financial crisis.

Only a few investors, including Michael Burry of “The Big Short” fame and John Paulson, recognized that house prices had reached unsustainable levels and had the courage and conviction to bet against ostensibly safe mortgage-backed securities.

Krugman, who won the Nobel Prize in economics in 2008, attributed the widespread delusion to the “incredulity factor.”

Krugman asserted that the crypto market peaked at nearly $3 trillion in November and is a similar story. He emphasized bitcoin’s lack of practical applications, questioned how tokens are superior to traditional payment methods and highlighted crypto’s popularity among fraudsters and money launderers.

The Nobel laureate observed that, as with the housing boom, it appears absurd to question an asset class that has become valuable and attracted many influential promoters. He said crypto is “a house built not on sand, but nothing at all.“

Crypto has become so valuable and popular that people wrongly assume it’s worth something.

Paul Krugman

In terms of identifying Michael Burry, he warned about the state of the US economy, demonstrating that Americans’ savings have collapsed since the spring of 2021, a situation he blames on spending to keep up with inflation.

Paul Krugman’s warning isn’t the only one that should deter crypto enthusiasts from investing in digital coins. EU supervisory organizations have cautioned that consumers risk losing all of their money invested in cryptocurrencies.

Due to the instability of the crypto market, the pressures from the regulators and the increasing prices, crypto users should recalculate their finances during this period.